The San Francisco Bay area is a robust auto market that recorded a 28% increase in light-vehicle registrations from 2011 to 2012, according to the California New Car Dealers Assn.

Still, operating a dealership, or any business for that matter, in the region poses its own set of problems, including “high rents, regulatory burdens and the rising cost of worker’s compensation insurance and employee-health plans,” former San Francisco Mayor Gavin Newsom once said.

That business climate, along with an auto market that has seen a seismic shift away from domestic brands, has taken its toll on dealers who once called San Francisco home.

“There used to be a very large auto row on Van Ness Ave. with a dozen or more dealerships, but there are substantially fewer than that now,” CNCDA President Brian Maas says, referring to a north-south thoroughfare.

A Van Ness Avenue dealership that has not only survived but flourished is Royal Motor Sales, which operates Volkswagen, Audi, Mazda and Volvo stores. Its chief operating officer is Andy Hansen, 38, a third-generation dealer who joined the company in 2003 as a Volvo salesman.

He later graduated from the National Automobile Dealers Assn.’s dealer-academy program.

“My grandpa, Andy Anderson, came to California as an orphan when he heard that there was work on the Golden Gate Bridge,” Hansen says. “He ended up not working on the bridge, but found work sweeping floors.”

The patriarch, 93, started Royal Motor in 1947 as a used-car store with a body shop. Volvo awarded him a franchise in 1956. He now lives in Napa, north of San Francisco.

Michael Hansen, Andy Anderson’s son-in-law and Andy Hansen’s father, took over the dealership in 1979. He added the Audi, VW, and Mazda franchises in the early 1980s.

The Stanford University and University of California-Berkeley graduate is a former bank vice president. He now is president of the dealership group, which ranks No.135 on the WardsAuto Dealer 500.

Hansen says sales have increased significantly in the past three years, growing from an average of 120 new and used units a month in 2009 to 250 last year. The group set an all-time record of 290 sales in December. It posted $120 million in revenue in 2012.

Royal’s balance sheet and commitment to stay in the city are reinforced by the fact that Hansen’s family owns most of the dealership’s real estate.

Because of San Franciscans’ preference for smaller cars, VWs are Royal’s best sellers, with an average of 80 units going out the door each month. After that, it’s Audi (50 per month, on average), Mazda (35), Volvo (20) and 40 used cars.

“One of the most exciting products on the horizon is the Audi Q3,” Hansen says. “Our customers in San Francisco tend to like smaller cars. I think it’s going to be extremely popular.”

“We track everything because if we don’t, we can’t improve,” he says. “Just like a baseball player, you can tell what to adjust to do better. We always want to know where we stand in terms of the competition and how we stack up against each other internally.”

Each member of Hansen’s sales staff gets a weekly report card showing customer- satisfaction scores, sales vs. goals, appointments logged and closing ratios. Technicians are tracked by “flag” hours, efficiency scores and fix-it-right-the-first-time metrics. A top technician at Royal can earn more than $100,000 a year.

With 45 technicians and a 60,000-sq.-ft. (5,574 sq.-m) service facility, the dealership can service up to 150 vehicles a day, Hansen says. “Our technicians are some of the best in the country and have consistently been selected to compete in national and international tech challenges.”

Hansen will open a multi-million-dollar 20,000-sq.-ft. (1,858-sq.-m) Audi store across from its current location next year. The 3-story facility will have rooftop parking and a vehicle elevator. Parking is at a premium in San Francisco.

Since adding a second body shop location in 2010, Hansen says that department’s sales and gross profit have doubled.

Other investment plans include adding four floors to the service building to create even more parking and service bays. Royal currently spends more than $60,000 per month to store 600 cars off-site.

Six-figure wages and a dearth of parking are just two of the realities dealers face when operating in any major city. Customers also may perceive that an urban dealership will have high overhead and skimpy inventory. But Hansen says Royal is competitive.

“It is more costly to do business in San Francisco, but our car prices are definitely not any higher because we have to be competitive with other dealerships,” he says. “With most of the business being done online, the price is pretty transparent.” Sixty percent of Royal’s sales originate with Internet leads.

Still, Hansen must battle the perception that downtown dealers are uncompetitive. He says seven out of 10 vehicle buyers who live in San Francisco purchase cars in the suburbs. “Our goal is to get those seven customers to give us a chance.”

To stand out, Hansen offers services that are tailored specifically to his professional clientele.

That includes encouraging customers to use the store’s service app to schedule appointments online. “Once they do that, we can usually get them in that day or the next,” Hansen says.

Royal also reimburses customers up to $20 for cab fare instead of having them use a shuttle, which may make several stops before it reaches the client’s destination.

“The cabs are lined up outside the shop every morning,” Hansen says.

“It’s all about being flexible and understanding that the person who’s working in a law firm or in the financial district is different from a family shopping at a suburban auto mall at the weekend,” says Maas of the CNCDA. “To Andy’s credit, they’ve adapted to their local market.”

For the past two years, Royal Motor Sales has held a benefit for the UC-San Francisco’s Benioff Children’s Hospital. The events raised a total of $50,000.

“We try to get very involved in the community,” Hansen says. “That has helped us retain a lot of the customers who live in the city and give us a shot at their business.”

Bolstered by $80,000 to $100,000 in ad spending every month, Hansen positions Royal as San Francisco’s hometown dealer with deep community roots.

In exchange for appearing in its ads, Royal’s Audi San Francisco dealership provides cars to members of the World Series Champion San Francisco Giants, including pitcher Matt Cain and outfielder Angel Pagan.

“Audi has been really hot, the Giants have been really hot, so the timing of putting those two together was great,” says Hunter Elkins, owner of Elkins Retail Advertising, which handles Royal’s account.

“When the players are seen driving an Audi from the only Audi dealership in San Francisco, you can put two and two together and say that’s really good for our brand image,” he says.

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